Bill Would Eliminate Overtime in Pension Calculations

April 2, 2015

by Steve Levy

Ground breaking legislation drafted by Assemblyman Michael Fitzpatrick would prohibit the practice of including a public employee’s overtime earnings into that employee’s pension calculations. The bill, which was drafted at the request of the Center for Cost Effective Government, seeks to amend the state Constitution to shield taxpayers from having to pay for public sector pensions inflated by overtime and severance pay, and limit the pension to be calculated on the employee’s base pay.

A recent expose from Newsday reported that there were almost 8,000 public sector employees statewide who are earning in excess of $100,000 and 90 retirees collecting over $200,000 per year.  One retired Queens College professor receives a taxpayer financed pension of $569,000 annually. The median household income in New York State is approximately $54,000.

Veteran employees who have been in the state system for decades are members of tiers that allow severance pay and overtime to be added to one’s base salary in the final years of service to calculate the pension that the employee will collect for the rest of his or her life.  It is not uncommon to see base salaries of $125,000 being increased by another $100,000 in those final years, thereby increasing the amount that the public will have to pay to that employee.

Lawmakers established a fifth and sixth pension tier several years ago that would indirectly limit the amount of overtime to be calculated into a pension formula by limiting the final number to no more than 10% above the employee’s average salary over the past four years.   However, Fitzpatrick notes that the restriction applies only to employees hired after the effective date of the passage of the new tier.  “Unfortunately,” said Fitzpatrick, “taxpayers will not see any relief from this new tier for decades down the road. In the meantime they will continue to have to shell out for these exorbitant pensions on a yearly basis.  I’m not sure these taxpayers will be able to stay here in New York long enough to appreciate any of the changes that were made in Tier 5 and 6.”

Steve Levy, the former Suffolk County executive and New York State assemblyman, and presently the executive director of the Center for Cost Effective Government, stated, “By the time these amendments kick in, taxpayers will have already been chased out of the state because of the outrageous taxes needed to feed the pension beast. Those of us in the system should want to see changes so that the system is still viable twenty years from now.”

Opponents of reform focus on a clause in the state Constitution which prohibits any legislative action that would “diminish or impair” an individual’s rights in the pension system.  (According to the Manhattan Institute only seven states have these restrictive clauses in their constitutions.).

Rather than become embroiled in legal battles that would result from passing a mere resolution, proponents of reform are going straight to the Constitutional amendment option. “We can no longer afford seeing these pensions artificially inflated by 50% because of overtime. We need to pass a bill to change this for existing employees immediately via a Constitutional amendment,” said Levy.

An amendment requires a proposal to be passed by two successive legislatures and passed by the public via a referendum.  The Constitution was recently amended to permit casino gambling in the state.

Last year the Center worked with Assemblyman Fitzpatrick in drafting resolution A4865, a comprehensive mandate relief bill that would: 1) amend the Triborough Amendment to eliminate step salary increases after a union contract expires, 2) cap mandatory arbitration awards to 2% and 3) require incoming employees to enroll in defined contribution pension plans rather than the present defined benefit plans with taxpayer guaranteed 7.5% returns on fund investments.

Supporters of the bill include the New York State Conference of Mayors, Unshackle Upstate, the National Federation of Independent Businesses, We The People, Tax PAC, Upstate NY Taxpayers Association, and Long Islanders for Tax Relief.